LivaNova PLC's (NASDAQ:LIVN) Price Is Right But Growth Is Lacking

You may think that with a price-to-sales (or "P/S") ratio of 2x LivaNova PLC (NASDAQ:LIVN) is a stock worth checking out, seeing as almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 3.3x and even P/S higher than 8x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for LivaNova

What Does LivaNova's P/S Mean For Shareholders?

There hasn't been much to differentiate LivaNova's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LivaNova.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like LivaNova's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. The latest three year period has also seen a 20% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 4.3% per year as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.4% per year, which is noticeably more attractive.

With this in consideration, its clear as to why LivaNova's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does LivaNova's P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of LivaNova's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware LivaNova is showing 1 warning sign in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.